More Taxes Not the Answer to California’s Budget Woes

Economic conditions are exacerbating already tight state budgets across the country. Dan Walters noted the impact of the recession on California’s revenues, particularly on sales tax revenues, in his Sacramento Bee column today. Walters writes:

Shrinking taxable sales also affect the deficit-ridden state budget. The budget deal approved last month raises sales taxes by one percentage point. State officials are hoping that a blue ribbon commission studying the state’s tax system will recommend extension of the sale tax to services. That would relieve its reliance on declining sales of tangible and taxable goods such as cars.

However, Walters seems to blame Proposition 13 for encouraging “cash-strapped local governments” to find other ways (besides increasing property taxes) to fund government programs and services. While it is certainly true that California state and local governments have found creative ways to impose additional taxes and fees, oftentimes to get around Prop 13’s restrictions, the problem is not that taxes are too low–far from it! Until very recently, and for many years, revenues have grown significantly. The problem is that whenever there is a period of economic boom and the state’s coffers are overflowing, legislators spend as though the good times will never end. When the inevitable correction comes, they are always shocked, shocked that revenues cannot keep pace with their unrealistic assumptions, and so we have another fiscal crisis. If California had simply held spending to the average population growth plus the average increase in the cost of living during the past three gubernatorial administrations–starting with Pete Wilson in fiscal year 1990-91 and covering the Gray Davis and Schwarzenegger administrations–the state would have been sitting on a $15 billion surplus instead of that $42 billion deficit. That’s a difference of $57 billion! California will never return to a state of fiscal sanity until it learns to kick its spending addiction.

For more analysis of California’s spending and revenues during the Wilson, Davis, and Schwarzenegger administrations, see my recent policy brief, California Spending by the Numbers.